Taxation of financial support in connection with COVID-19

Author: Jana Střelická
Did you, as a company or as an entrepreneur, in 2020 draw on any of the financial support provided in connection with the COVID-19 pandemic? Then you have certainly addressed or are currently addressing the question of whether to include the provided support in the taxable income for corporate or personal income tax. Today's article shall help you in the correct assessment. 

Subsidies from the Antivirus program (Antivirus A, B, A Plus, Antivirus C)

The subsidy in this program implemented by the Labour Office of the Czech Republic was certainly drawn by every company or self-employed person with employees. Taxation will be different if the beneficiary is a legal entity or an individual entrepreneur.

Antivirus is a targeted program to support employment. Programmes A, B, A Plus provided a partial or full compensation of total wage costs in the form of compensation of wages due to employees for the period of obstacles at work caused by quarantine, emergency measures, crisis measures related to the spread of the disease.

From the point of view of the employer - legal entity, it is an operating subsidy for incurred costs, which represents taxable revenue. The related costs are considered tax deductible. In this respect it is important to consider the accrual principle of labour costs and subsidies in accordance with accounting regulations.

From the point of view of the employer – individual entrepreneur, the income is exempt from income tax in accordance with the provisions of § 4 par. 1 letter h) of the Income Tax Act as a performance from the application of state employment policy instruments. Therefore, this income is not stated in the tax return. At the same time, however, the relevant part of the costs related to this income cannot be considered as tax deductible.

In the case of the Antivirus C program, it was employment support in the form of a discount on social insurance for the month of June to August 2020. Therefore, only reduced liability / cost to the social security administration was recorded in accounting or tax records, which represented a tax deductible cost.

Grant COVID programs

These are subsidy programs administered by the Ministry of Industry and Trade, the Ministry of Regional Development or the Ministry of Agriculture and provided to mitigate negative impacts on businesses in the Czech Republic associated with government resolutions in connection with the COVID - 19 pandemic, such as COVID Rent, COVID Gastro - Closed premises, COVID Culture, COVID Sport, COVID Accommodation, COVID Tourism support, COVID Bus, etc.

All these subsidies have the character of non-investment financial support, i.e., they are operating subsidies, which represent a taxable revenue / income for legal entities as well as for individual entrepreneurs. The related costs are then tax deductible.

Compensation bonus

The compensation bonus administered by the Financial Administration represents support for entrepreneurs - self-employed persons, partners of the Ltd. and persons performing work on the basis of an agreement on work performed outside the employment relationship, provided that certain conditions are met.

The compensation bonus is defined as a tax bonus to compensate for certain economic consequences directly related to the restriction or prohibition of business activity as a result of measures taken by state administration bodies to protect the population and prevent the risk of COVID-19.

From the point of view of the Income Tax Act, income in the form of a tax bonus is income exempt from personal income tax pursuant to the provisions of § 4, par. 1, letter zj) of the Income Tax Act and is not stated in the tax return.

Allowance for taking care of children for self-employed persons

This allowance administered by the Ministry of Industry and Trade represents support in the form of a subsidy paid to self-employed persons due to the effects of a state of emergency, when self-employed person could not run the business in the full scope due to taking care of children during the period when the schools and other facilities were closed.

Income from the said program is exempt from personal income tax in 2020 and 2021 on the basis of a provision which is somewhat unsystematically stated not in the Income Tax Act but in the Compensation Bonus Acts (§10 in Act No. 159/2020 Coll. and §16 in Act No. 461/2020 Coll.). Therefore, this income is not stated in the tax return.

In connection with the received subsidies, we would also like to point out that the received subsidies, whether they represent exempt or taxable income on the side of the recipient, are included in the spouse's own income for the purposes of applying the tax credit for a dependent spouse.

We believe that the article provided you with answers to your questions regarding the taxation of received financial support. If you still have any questions in this regard, do not hesitate to contact us.

Contact our expert

Jana Střelická
Certified Tax Advisor

Tax Advisory